Rules on property rights when a person builds a house on land owned by someone else.

What does the law provide about ownership of a parcel of land and of the improvements thereon?

Under the Civil Code, the owner of a property has the right by accession to everything which is incorporated or attached thereto either naturally or artificially.[1]

However, there may be instances when the landowner is different from the one who built an improvement, say a building, on the land. Hence, the Civil Code[2] provides that whatever is built, planted or sown on the land of another and the improvements or repairs made thereon, belong to the owner of the land, subject to the provisions of the succeeding articles.

What are the rights of the landowner and the builder?

In determining the rights of a landowner and a builder, we must determine first whether they are in good faith or bad faith.

What constitutes good faith and bad faith?

The essence of good faith lies in an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another.[3]

On the other hand, the Supreme Court (SC) said in Spouses Espinoza v. Spouses Mayandoc[4] that bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of a wrong. It means breach of a known duty through some motive, interest or ill will that partakes of the nature of fraud.

What then are the different scenarios and the respective rights of the landowner and the builder?

A. Both in good faith

Art. 448 of the Civil Code applies when both the landowner and the builder are in good faith.

With respect to the landowner in good faith, he has the right to:

1. Appropriate as his own the building after payment of the indemnity required by law[5]; or

2. Oblige the builder to pay the price of the land.

The SC emphasized that the choice belongs to the owner of the land, a rule that accords with the principle of accession, i.e., that the accessory follows the principal and not the other way around. Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. The landowner cannot refuse to exercise either option and compel instead the owner of the building to remove it from the land.[6]

The SC further said in Spouses Espinoza v. Spouses Mayandoc[7] that, “the raison d'etre for this provision has been enunciated thus: Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent."

On the other hand, a builder in good faith is entitled to retain the possession of the land until he is paid the value of his building, under article 546.[8] The term "builder in good faith" as used in reference to Article 448 of the Civil Code, refers to one who, not being the owner of the land, builds on that land, believing himself to be its owner and unaware of the defect in his title or mode of acquisition.[9]

B. Both in bad faith

Under Art. 453, if both the landowner and the builder are in bad faith, the rights of one and the other shall be the same as though both had acted in good faith, therefore, the above scenario will be applied.

There is bad faith on the part of the landowner whenever the act was done with his knowledge and without opposition on his part.[10]

C. Landowner in good faith; builder in bad faith

Padilla v. Malicsi[11] summarized the rights of the landowner, to wit:

Based on these provisions [referring to Arts. 449-451 of the Civil Code], the owner of the land has three alternative rights:

(1) to appropriate what has been built without any obligation to pay indemnity therefor, or

(2) to demand that the builder remove what he had built, or

(3) to compel the-builder to pay the value of the land. In any case, the landowner is entitled to damages under Article 451.

On the other hand, the builder in bad faith may recover necessary expenses for the preservation of the land but without any right of retention.[12]

D. Landowner in bad faith; builder in good faith

Under the Civil Code[13], the landowner in bad faith shall pay the value of what was built and he shall be obliged to the reparation of damages.

On the other hand, the builder in good faith may remove what he built in any event with a right to be indemnified for damages.

[1] Article 440. [2] Art. 445.

[3] Delos Santos v. Abejon, G.R. No. 215820, March 20, 2017. [4] G.R. No. 211170, July 3, 2017. [5] See Arts. 546 and 548, Civil Code. [6] Padilla v. Malicsi, G.R. No. 201354, September 21, 2016. [7] Supra, note 4. [8] Supra, note 6. [9] Spouses Aquino v. Spouses Aguilar, G.R. No. 182754, June 29, 2015. [10] Art. 453, paragraph 2, Civil Code. [11] Supra, note 6.

[12] Art. 452 in relation to Art. 546, Civil Code. [13] Art. 454, in relation to Art. 447, Civil Code.

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